ENRON'S MANY STRANDS: THE HEARINGS

ENRON'S MANY STRANDS: THE HEARINGS; Official Defends Proposed Change in Pension Plans

By STEVEN GREENHOUSE and ADAM CLYMER

Published: February 7, 2002

WASHINGTON, Feb. 6—
Wading into an emotional political debate touched off by the Enron debacle, the Bush administration sent Labor Secretary Elaine L. Chao to Capitol Hill today to defend the president's plan to protect workers from catastrophic losses in retirement accounts.

Ms. Chao warned today that Democratic proposals to restrict the amount of company stock held in 401(k) retirement plans would limit workers' freedom to invest their pension funds. She also defended the administration's plan to allow corporations to require that workers retain company stock in their retirement accounts for as long as three years.

She said the Bush plan for changes in pension funds balanced worker and corporate interests. Companies encourage employees to hold company stock in retirement accounts to foster loyalty and keep large amounts of stock in friendly hands.

Democrats argued that limiting retirement holdings in a single company would help protect workers from devastating losses like those suffered by thousands of Enron workers, whose 401(k) plans were virtually wiped out when the company's stock price collapsed.

Mr. Bush's pension proposals are a political gamble in which he appears to be trying to convince Americans that he is responding decisively to the Enron collapse. But in hearing after hearing this week, Congressional Democrats, also angling for public favor, have criticized the president's proposals as timid and too friendly to corporations.

On many levels the pension debate parallels the debate over privatizing Social Security. Mr. Bush and most Republicans want to give Americans far more individual control over their Social Security investments. But many Democratic lawmakers favor continuing government control over Social Security investments because they believe that under a privatized system many Americans could invest unwisely and end up with little in their retirement accounts.

Many Democrats say one lesson of the Enron collapse is that caps on how much of any one company's stock can be held in a 401(k) plan are needed to protect the many American workers who have more than 60 percent of their 401(k) plan invested in their own company.

Democrats also criticized Mr. Bush's proposal to let workers sell any company stock that their employers contribute to 401(k) plans after three years, ending the practice by some businesses requiring workers to hold stock in their employer's company for decades. Many Democrats called Mr. Bush's proposal too friendly to companies, saying that employees should be allowed to sell their company stock far sooner.

In her appearance today before the House Committee on Education and the Workforce, Ms. Chao, noting that many employees like to invest heavily in their own companies, criticized the idea of limiting such investments. Senators Jon Corzine of New Jersey and Barbara Boxer of California, both Democrats, are scheduled to testify Thursday before a Senate committee to defend their proposal to cap investment in a company's stock at 20 percent of an employee's 401(k) plan.

Ms. Chao said that was a bad idea. ''Restricting workers' choice won't necessarily make their investments safer. It will just reduce the freedom that workers have to shape their own financial futures.''

She praised President Bush's proposal to allow workers to sell company stock in three years, saying it was a compromise between what employees and employers want. Many companies want their workers to hold onto large amounts of company stock for years because it helps ensure dedication to the company.

Representative George Miller of California, the senior Democrat on the House committee, sought to turn the tables on the Bush administration by arguing that its proposal interfered with employees' freedom to invest. Mr. Miller said that if Mr. Bush was serious about promoting freedom for investors, the plan should favor allowing employees to sell company stock in 401(k) plans within a year of obtaining it.

''Obviously someone can get hurt when they have to hold stock for a three-year period when markets are moving at the speed of light,'' Mr. Miller said.

In a sharp exchange, he asked Ms. Chao why the administration was punishing workers by forcing them to hold stock for three years.

''That's not the intent,'' she responded.

In today's debate, Republicans and Democrats seemed to want to position themselves as the best friend of the 42 million Americans with $2 trillion invested in 401(k) plans. Republicans emphasized giving individuals freedom of choice. Democrats favored some government intervention, like the proposed cap, to protect workers from poor investment decisions, as well as from corporate coercion.

Ms. Chao and other Republicans warned that the Democrats' proposals, like the 20 percent cap, were excessive government intervention. They warned that the Democrats' proposals could hurt employees by discouraging many companies from matching workers' 401(k) contributions with company stock.

At today's hearing, Ms. Chao explained other administration proposals, including one that would require companies to give a 30-day warning before they impose a moratorium on employees' selling company stock in their retirement plans. Another Bush proposal would bar top company executives from selling any stock when moratoriums bar lower ranking employees from selling stock in their retirement plan.

Lawyers suing on behalf of 15,000 participants in Enron's 401(k) plan say these employees lost $1.2 billion because of fraud by the company. These lawyers also assert that the moratorium on stock sales for several weeks last fall hurt thousands of Enron employees because Enron's share price plunged.

Republicans said there was a simple way to avoid the financial devastation suffered by many Enron employees -- giving them more investment advice.

Representative John A. Boehner, the Ohio Republican who is chairman of the Education and Workforce Committee, has proposed a bill to give companies more freedom to hire financial firms to advise employees on investment opportunities. The House approved the Boehner proposal last November, and today he called on the Democratic-controlled Senate to do likewise.

''Enron's employees are the victim of an outdated federal law that continues to needlessly deny rank-and-file workers access to quality investment advice.'' Mr. Boehner said.

Democrats warned today that Mr. Boehner's proposals could backfire because of possible conflicts of interest in which financial firms steer workers into investments with high administrative costs or in which the firms have a stake.

But Republicans defended the Boehner proposal, saying workers would be adequately protected because the financial firms would be required to disclose any conflicts.

Photo: Labor Secretary Elaine L. Chao testified yesterday before the House Committee on Education and the Workforce, defending the president's plan for changes in pension funds. (Stephen Crowley/The New York Times)